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Capital Gains & Dividends Taxation

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) provided capital gains tax relief for long-term capital gains realized after May 5, 2003 and extended capital gains tax rates to qualified dividends, beginning with dividends paid by corporations to individuals in 2003, but only through December 31, 2008. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), signed into law in May 2006, extended the lower JGTRRA capital gains and dividend tax rates through December 31, 2010. The 2010 Tax Relief Act further extended the favorable tax treatment through December 31, 2012. The American Taxpayer Relief Act of 2012 made permanent the lower capital gains and dividend tax rates for all but higher-income taxpayers.

Long-Term Capital Gains and Dividend Tax Rates

A capital gain results when an asset is sold or exchanged for more than its cost basis. Capital gains realized on assets held for one year or less are short-term capital gains and are taxed at ordinary income tax rates. Long-term capital gains resulting from the sale or exchange or an asset held more than one year, however, receive more favorable tax treatment.

2014 Income Tax Brackets                        2014 Capital Gain Tax Rate
10, 15%                                                                                        0%
25%, 28%, 33%, 35%                                                                15%
39.6%                                                                                           20%

Medicare Contribution Tax
Higher-income taxpayers are subject to a 3.8% Medicare contribution tax on unearned or net investment income, which includes interest, dividends, rents, royalties, gain from disposing of property, and income earned from a trade or business that is a passive activity. The tax applies to single taxpayers with modified adjusted gross income (MAGI) in excess of $200,000 and to married taxpayers filing jointly with a MAGI in excess of $250,000.

4 Responses

    1. Generally capital gains are taxed at the capital gain tax rate at your income. Other retirement income is usually taxed as ordinary income, unless for example some is from tax free bonds or Roth IRA.

  1. Bharat Desai

    I am a retiree.
    I have Social Sec. income(27K)
    IRA Withdrawals(20K)
    Annuity drawings(11K)
    Dividends(17K)-Qualified Div included in 17k is 8k
    Capital Gains-Long Term-53k-Distributions by MFDS
    Itemized Ded -18K
    Mariied Filing Jtly and ages are over 75
    What is my taxable income and fedral Tax
    Please help as we do not know what is taxes at 10 and 15%rate and what is taxed at ordinary income rates!
    What of AGI is taxed first after deducting Itemized Ded and exemptions!
    Cap gains or Other retirement income!
    Thanks

    1. Bharat, Your question is for very specific tax advice which I can not provide here. You need to contact a CPA so that they can review your personal tax situation in detail.
      Thanks.

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